The Strategic Organization - Introduction to Requisite Organization Theory

Speaker A It's a great honor to be back in Argentina. My wife Cynthia and I spent a good part of four years here in the early, early ninety s and came to love your country. We got an apartment in Ricoletta. We had hoped to do a great deal of work here. Unfortunately that was around the time the Mexican peso collapsed and work dried up and so we have not been back since 1995 and it's wonderful to be back. One of my favorite quotes was made by our president John Kennedy when he was hosting a dinner in the White House for the Nobel laureates the past few years and he said, never has there been such a collection of intellectual brilliance since Thomas Jefferson used to dine here alone. I believe this group pays homage to a man who can satisfy the same criteria, elliot Jacks. This was a man of tremendous mental power, of enormous value and created, I believe, wisdom that can make major changes in the world in the decades and generations to come. And Argentina has been at the forefront of experimenting and applying the principles of requisite organization and organizational design. So what I would like to do let's see, where is the forward button I should use the keyboard. Okay, good. Is I would like to ask you to consider whether you are consultants or whether you work within a company. What percentage of your time and that of the managers do you spend working the system that is doing non value adding work versus doing the real work that you were paid to do? And if you respond the way most people do that, you probably spend more than half of your time compensating for the failure of your organization to work as efficiently and accountably as it could. And that is a huge source not only of wasted opportunity for the customers and the owners, but it represents a huge source of frustration and demoralization for the people who work in those organizations. So that really becomes the impetus for why requisite organization. Another very famous quote that we have not been able to attribute to anyone but to a Roman some 2000 years ago that a slave with three masters is a free man. And Elliot Jacks, at the dawn of his organizational science career was the first person to begin to articulate the meaning of accountability and managerial accountability. That if you have an employee that has more than one manager, then no one is accountable for that employee. So the axiom that flows from that is accountability without authority is fantasy and it causes stress, inefficiency and sub optimization. But to rectify to mitigate that problem requires aligning accountability and authority and that requires clarity, discipline of thinking in action and high standards. And this is what Elliot Jax brought to the world. He brought a model and a language that affords us that clarity, allows us to implement process with discipline and allows us to replicate those high standards across the entire organization. That's what this is about. And if you heard the about it's, because I spent a lot of time in Canada and they've rubbed off on me. Now, where does requisite organization fit into all of the other management fads where the pendulum swings back and forth? Well, that took me a few years to understand, but basically I came to realize this, that in any organization there are shareholders that have assets and they have intentions for those assets. And when they form an association and have a governing body, what they do is they employ people. Now they employ people starting with the CEO to get the work done. But what is it that we're doing when we employ people as opposed to computers and robots? We are employing people because we need to harness and release their creative initiative. That's what work organizations are. There are societies of a particular sort, accountability, hierarchies, in which we engage people and employ them to apply their creative initiative to the work that needs to be done. But the simultaneous property of our managerial systems is we get work done by having many people work in common on processes in order to achieve outputs in common. And that requires control. And I believe it is the twin forces of needing, on the one hand, creative initiative and on the other, needing to maintain control that is responsible for the emergence of these fads. And the pendulum swinging back and forth when things become too loosey goosey that's a technical word. When they become too loosey goosey, the management says we need to tighten up. We need to get more control. And as you get more and more control, you limit the discretion and the opportunities for people to exercise their creative initiative. And eventually that bureaucracy becomes bureau sclerotic. And then the organization, while it's in control, is falling further and further behind. So the pendulum switches in the other direction into adocracy. And we want to give people lots of room to make their own decisions and have team working together to figure out how they can define the organization's agenda. But what happens is there's no authority for them. And in the mid 90s that was a very popular fad in the US. And I thought the pendulum was going to swing the other direction. But instead the zealots won out and we moved further up the pendulum into empowerment, which essentially yielded anarchy. One of our clients which succumbed to that anarchic proposition of empowerment, the managers, the jarentes, the heikotivos that would come to our seminars would say, we are now very careful. When the CEO comes around and says, poof, you're empowered, we run because we know we haven't been empowered, we've been poofed. And occasionally the pendulum swings in the other direction. Chainsaw Al Dunlap just check your brain at the door. Do what we tell you to do. Well, what Elliot realized and recognizes, we can't afford an either or approach to control or creativity. And in developing requisite organization, he created a leadership system that captures the basis of accountability and creativity simultaneously. We had a customs problem, but each of you will get a copy of my book, Accountability Leadership. So how do we begin to think about this holistic model of requisite organization that Elliot Jacks put forth? He said that in any managerial system, they exist to accomplish some purpose. And that purpose then gives rise to a strategy. And the issue is, how do we implement that strategy in such a way that allows us to employ people creatively, but to maintain the control so that we can be assured of implementing the strategy? And in essence, he said, strategy sits on a three legged stool that is governed by leadership. The first leg of strategy is process, because if we don't have process, we don't have the means for executing on strategy. But process is simply a description of the decisions that need to be taken. We need structure to delegate the authority with which to take those decisions and through which to hold people accountable for the outcome of those decisions. And in order to make those work together, we need systems that can both define and ensure the integrity of those processes and that structure. And from that system, we're able to define the accountabilities of each role. And from the accountabilities of each role, we're able to describe the capabilities necessary to be effective in those roles. And that then leads to the third leg of the stool. How can we employ, recruit, employ, deploy, and develop our people so they are fully capable of executing on strategy today and in two years, and in five years and in 20 years. But people, unlike computers and robots, are complex, intentional creatures. And we don't simply work because you push a button. We work because it's in our interest to work. And what Elliot discovered and articulated more clearly than anyone else is we don't work by bribes or coercion. We work because we're given work that allows us to realize and achieve our full potential. And that what we need to do, is ensure that our leadership practices and our HR systems exist in a way that reinforces the values of trust and fairness. So that when people are given work that they value, they feel free to unleash their full potential in accomplishing that work. Well, you can imagine then, implementing this is a complex process. The problem is, and this is why requisite organization, I believe, has not taken off in the world, is there are many moving parts. Now, I think some of you in the room will immediately know what this is. But those of you in the room who don't, can anyone take a guess? Well, even in the United States, people will say the United States. Maybe that's Texas. Maybe that's California. The problem is, if you don't recognize the parts it's difficult to visualize the whole. Now, do people recognize these components? That's easier. Now I do see Texas and California. When you recognize the components and you see how each of them connects with the other then you can understand the big picture. So the task in front of us is to create a model from which we all have a common language. Why a common language? Louder. We are thinking we are sinking. Hello, this is the German Coast Guard. What are you thinking about? One of the reasons why Elliot Jacks has not caught on is that his writing is so precise and his use of language is so univocal that people have trouble understanding what he means. And the starting point in looking and understanding requisite organization is the most basic and that is that managerial systems are accountability systems. Well, in 1990, when Arturo Acevedo, the CEO of Sindar, invited Dr. Levinson and me and a couple of our faculty to come down to Buenos Aires to begin to train the Jerentes, we were using wonderful simultaneous interpreters and I was not fluent in Spanish, and I kept the earphones underneath around my neck, thinking that somehow I could pick up Spanish by hearing myself talk in Spanish. Don't try it. But I learned very quickly that when I used the word responsibility, it was translated into responsibility, dad. And when I used the word accountability, it was translated into responsibility, dad. Now, as an American English speaking person who had had no prior experience working in organizations because my background was psychiatry I had no notion that companies use the words interchangeably. Roles and responsibilities accountabilities. But in English, when we say, that is a responsible young lady we are referring to her responsibility to herself to adhere to her standards, to her conscience, to her aspirations. But when we say someone is accountable we're saying that person is obligated to honor a commitment that person made to someone else and therefore has to understand that person will be called to account. And this was a very important starting point for my own growth in understanding the value of clear language and of the basis of requisite organization. Because what this meant was responsibility resides inside the person. But accountability is attached to the role that when I have a subordinate and I delegate some assignment to that subordinate and he commits to it not only is he committed to it but he has committed the role to delivering that accountability, that assignment. Because if that person moves on to another role and someone else moves in that person inherits that accountability. Well, then this raises the question what must we hold? What managers must hold their subordinates accountable for? For performance, for effectiveness? And the short answer is managers need to hold their subordinates accountable for both for what they do and how well they do it that employees must be held accountable for performance. Which means that when you give your word, you keep your word. No surprises. And their effectiveness. Which means when they understand the weight of the role, they are accountable for earning their keeping. One's word means meeting commitments. No. Surprises and adhering to policy. No forgiveness. Earning one's keep means working at the level of effectiveness required of the role. This is where the economic value comes from our employees creative initiative. Keeping your word is necessary to ensure process control. While this is understood, I would argue in the US by fewer than 5% of companies and corporations and governments. Accountability is a very nebulous notion. Earning one's keep is not something that can be measured, but it can be judged. Employees earn their keep by making ambitious commitments in the first place and continually adjusting and expanding and renegotiating them as necessary. They earn their keep by striving not just to complete their assignments, but to do so in such a way that accurately supports the overall team's objectives, in a way that they meet their own commitments. But if it also makes their job more difficult, they are accountable for doing so and earning one's keep. Means that employees must understand that they must conserve resource. It's not okay to just use up your budget. Anytime you can conserve resource, you're improving the organization's aggregate resource. And anytime you can take the initiative to improve resource. Whether or not you've been assigned. That's part of earning your keep. Ricardo yesterday said the first one is Full Steam, the second one is Teamwork Across the Organization, and the third one is Optimizing Resources. Elliot jacks was Able to articulate that if we try to box in people too much, we essentially rob them of the opportunity and the pleasure of adding significant value. So how do we create clarity about what one is accountable for? By defining outputs clearly how much? How? When? By when? Within what constraints? Well, how do we implement accountability? Well, first, we insist that managers clearly define them, that they make sure that the people who work for them understand them and agree that they are achievable, which then gets to the next part of a manager's accountability. Namely that discussion around the assignment and the delegation requires that the requisite authorities and resources are also delegated so that the employee can deliver on those accountabilities. But for the notion of being called to account to feel fair, we also need to be clear with our people what outputs and throughputs we're going to assess and how we're going to assess one's effectiveness. Because if we don't know how you're going to judge us, then we spend more of our time defending ourselves than applying our judgment to adding full steam ahead. And finally, we need to ensure that the consequences for meeting or not meeting one's accountabilities are accurately reflection, are an accurate reflection of what they've done, namely positive consequences for meeting accountabilities, negative consequences for not meeting them in the US. Sadly, accountability almost always refers to not meeting accountabilities. And this is a prevalent notion of what accountability really means. The point I'm trying to make is if we don't satisfy those requisite conditions, accountability devolves into a system of fear, coercion and punishment. So what this means if we're talking about keep your word and earn your keep, is that managers, by definition, are accountable for what their people do, how well they do it, and ensuring they adhere to policy when they do it. So Elliot's next contribution to this management science was to ask what are the requisite authorities that managers need if they are to be fairly held accountable for their subordinates? And he concluded that a manager cannot have his or her arm twisted to fill a vacancy with someone that no one else wants. Namely, if you're going to hold me accountable for ensuring my subordinate positions are effectively filled, I at least need to be able to say no to people that you are offering up that I don't believe can do the job once you have the role filled. If I'm going to be accountable for their outputs, then I have to define what kinds of assignments they're capable of receiving, even if I'm not the one who's assigning them. And I have to delegate to them the requisite decisional resources and authorities in order to meet those accountabilities. If I'm going to be accountable for their effectiveness, I have to be part of the process about evaluating their effectiveness. And if I'm going to have the authority to implement consequences to ensure their effectiveness, I have to be able to call subordinates to account by deciding on their merit award for effectiveness, applying discipline when they are insubordinate, and initiating removal from role for failure to meet role requirements. We work with a number of the US federal agencies where these authorities, for all intents and purposes, are not there. We'll hear comments from managers saying, we've made a real improvement in agency X. Now we're able to issue a verbal warning the first time they shoot you. So one has to be very clear about the integrity with which authority and accountability are given to managers. Well, what's the problem if we have an ineffective manager? Well, the team that they are accountable for is going to start to disassemble. If they are not being held accountable, they're not being developed. And so their part of the process will start to lag, which means people upstream and downstream are going to have to compensate to do the work that isn't being done, which means they have less time to do their own work, which means those departments start to lag, which means that division starts to lag, so on and so forth. That's if you have one ineffective manager. My experience, most organizations may have 30, 40% ineffective managers. So all of a sudden, this is not an academic problem, this is a very real business problem. So how do we ensure accountability? Because it's been my experience, a culture of accountability has as a prerequisite the notion that consequences are appropriately applied. That is necessary, not sufficient, but it's necessary. Well, how do we apply consequences for people who fail to keep their word? Well, we start with things that are uncontroversial and important. Lack of safety, lack of honesty. People are caught behaving in such a way, there should be no question, but those people will be terminated. When people begin to get a sense that you're not joking anymore, then you move on to things that are more difficult to assess but no less important. And so if there are accusations of harassment or abuse or discrimination, if investigation points out that they did indeed happen, there have to be serious consequences. And eventually people then understand that making commitments themselves carry with it an obligation to either give someone a heads up or deliver exactly as agreed upon. When one understands there are process limits and constraints for a reason, people understand to knowingly violate those constraints is grounds for discipline. Well, that seems pretty harsh. Our experience is when you begin to do that with the few repeat offenders, everyone else in the organization says it's about time. But that's in relationship to keeping your word. That's actually the easy part. What about people who are not earning their keep? Well, if we believe they have the potential to be effective, then managers are obligated to develop them, certainly within certain time constraints. If they are not showing improvement in their effectiveness with sufficient speed, then you have to notify them that their position is in jeopardy. And then finally, if you can make a fair case that these employees have not developed at a rate that is consistent with meeting their requirements, then managers are obligated, not just able, but obligated to remove them from role. Because after all, managers are accountable for effectively filling their subordinate positions. It ain't personal. Well, what about the upside? Because accountability, in my experience, the downside, once you establish the pattern and the consistency that goes away. People know and respect those limits. What's the upside? Well, I'm a great believer in acronyms if they work. Elliot Jacks pointed out in many ways that people want to realize their potential. People want to feel pride in their workmanship, in their craftsmanship. Well, how do we do that? Well, by giving people employment in roles that are meaningful for them and challenge their potential and developing them and teaching them. We help people be successful. And that leads to personal gratification. And by managers recognizing people's contribution and their own growth, that gives that personal recognition accentuates the pride. And here's where Elliot's contribution to the field of management science probably is the most underrated, that if you try to get people to deliver more value by bribing them with bonuses based on outputs, all you're doing is teaching them how to manipulate the system. If on the other hand, you create the conditions in which people understand the value of contributing as fully as possible to the organization and are successful in doing so, their increased value contribution should be matched by an increased financial reward, not to bribe them, but to induce a sense of fairness in the organization. As people who have the potential to take on bigger assignments demonstrate their effectiveness with their current assignments, we give them more opportunities. And as people with greater potential who have fully mastered the role they're in, they should be first in line for promotion. The consequences have to be fully aligned on the positive side, not just the negative side. So I would like to suggest, as Elliot did, that all of these notions are not artificial notions but they are really at the basis of free society. That if we have no trust, we have no basis for relationships, for communities, for civilization. And if we have no fairness, we have no basis for people seeking to work together, for people contributing to each other. Because they know as you give, so shall ye receive. Elliot developed a theory and a management science, but he was really talking about human nature in the larger context as well. So what was the final aspect of his approach to accountability and organization? It's that all employees are accountable for keeping their word and earning their keep, and managers are accountable for ensuring they keep their word and earn their keep. And if managers fail to do that, their managers need to hold them accountable for doing so. This is why the effective implementation of requisite organization must begin at the top of the organization. It's not that you can't start it at other levels, but it will never be as effectively implemented as if it is at the top. Well, then Elliot said, what are some of the properties of how we construct our processes and devolve our authorities? I e structure. And he began to clarify that structure is important to align accountabilities and authorities. One of my all time favorite cartoons is a Gary Larson cartoon explaining why structure is important. This is the boneless chicken know. Imagine what we would all look like if we had no skeletal structure. We would be just pools of protoplasm lying on the floor. Well, think about structure as this skeletal structure upon which we attach our mental muscles to exert leverage. And that's what structure is. It's the way we place our bets to devolve the CEO's authority across the organization to support the processes that we need. Well, one of Elliot Jack's first true scientific discoveries was enabled by his discovery, really, of the first scientific approach to measure a property of a managerial system time span. And that's why Harold will be moderating, and Ulf and I will be talking about time span because it is the central, most important starting point for requisite organization. It is also the most confounding measurement to most people beginning this process, and it is critical to understand what it means and how to do it. But in essence, like Gabrielle Vile said, if an organization has too many levels, like a ladder having too many rungs, it becomes very difficult to climb it because we're stepping all over our own feet. If an organization has too few levels, like a ladder has too few rungs, then it also is very difficult to climb because the reach is too great. Elliot Jacks discovered an underlying property of structure in all managerial systems across the world in public and private sectors in over 20 different industries. You'll be learning about that those of you who are relatively new to requisite organization in your Spanish track during the course of the next three days. He also developed an architectural set of principles about the different functions that are necessary to conduct business. Namely, there is more value than to say, staff and line functions, but there is value in thinking through which specific functions are necessary in order to conduct business, what specific functions are necessary in order to resource those business functions, and what functions are necessary to ensure the effective control of those resources while doing business. He also discovered as an offshoot of the nature of human nature, human capability and human communication, that there are natural properties to designing effective processes, because processes really are many people working together on a common pathway to achieve an output, and people need to be able to work intelligently in relationship to each other. So how do you get people on different teams to understand the trade offs that someone else, upstream or downstream, has to consider when you're asking them to adjust what they do? Well, if they don't have the same manager, they're not going to understand your concerns as well as they would if they don't have the same manager once removed. It's going to be very hard for people working in a common flow to come up with the optimal decision for the organization. And Elliot then postulated that we need to ensure that our critical cross functional processes have only three levels from one role for the people who have to work together in that role. What I'm trying to convey is Elliot Jacks essentially laid out the physics of working systems and then gave us the engineering principles with which to design and implement that physics. And then finally he began to explore, and I think this was work, that he would have continued to elaborate on the importance of having systems and understanding how systems need to work, because so many large companies resort to complex matrix solutions when they have many people with similar functions working across different parts of the organization. And that gets back to a slave with three masters. If I have my straight line manager, my doted line manager, my curly queue line manager, it's not clear who is accountable for me. Now, I'm running through this very quickly because in 1 hour I want to give you a quick flyby. This is really about the system. It's about how do we engage people, how do we align people, how do we align the leadership system. But all of this comes together. None of this will be put into motion unless we have people who are effective and capable of being effective in deploying those roles. So he basically said, look, we've got structure and process. The structure gives rise to a hierarchy, the process gives rise to a hierarchy. That role hierarchy gives rise to functions. The process hierarchy gives rise to some processes. And eventually then a role is defined by its complexity, its functions, its processes. And the assignments in the role represent, if you will, the fruit we put in that basket. Well this then gave rise to a way of systematically and consistently defining roles. A role can be defined by its title, its complexity, its purpose, its functions and processes and assignments can be defined in various ways. And all of that informs us about the capabilities necessary to be effective in those roles. And that gives rise then to a very simple way of saying what is each role accountable for in the near term, the midterm and the long term? Getting rid of these long boilerplates of job descriptions and helping people very quickly understand exactly what their role is and in relationship to which other roles. Well, as Elliot would say, if we're going to implement strategy, first we have to get the right organization, we need to get the right levels, the right alignment of functions, the right processes with clear processes. And that allows us then for each role to clarify its complexity, the types of work, the nature of work, the working relationships. But I would say his greater reputation rests on all of his work in understanding the human capabilities necessary to fill those roles. And what Elliot Jacks did is he found a way to first help managers judge people's potential and then in the help managers or to help specialists measure people's potential to improve the fit of person, to level of work, of the role. And as the process with him and after him continued to be able to assess in a consistent way against high standards, people's effectiveness and role, that then helped us understand where in our pipelines of potential are we lacking talent. That is going to be a barrier in the future for our successful fulfillment of strategy, even if it is not yet a barrier. And so it allows us to be more strategic in our recruiting, more accurate in our development and training. And if we can then tie value given to value received and compensation, then we have all of the conditions necessary to have the right people working at full steam and retaining them because this is the place they want to work, because this is where they can be successful. But having done that work, now we have the. Ability to far more accurately deploy talent, and every possible vacancy and every selection becomes an opportunity to move the entire pool of talent in the right direction, not only today, but for the future. So he came up with a very simple proposition. What are the things that people need to be effective in a role? Well, they need the hardware and the software. They need the potential to solve problems of that size and need the skilled knowledge to solve those particular kinds of problems. But the hardware and the software by itself is not enough. They also need the energy, the drive, the commitment. And they need not to essentially work against themselves or against the organization. So they need the energy, the power, and they need to make sure that they keep any dysfunctional behavior checked at the door. Elliot formulated in the most elegantly, simple way that to be effective in role, you got to be big enough, you got to know enough, you got to care enough, and you got to be mature enough. And that model we have found works with CEO of Fortune 100 companies, and it works with first line supervisors out in the shop floor in Western England or in Australia. So with that model in tow, Elliot said, how are we going to assess role complexity in a way that allows us to match that to a person's potential to handle complexity? He started with the model that he discovered 50 years ago, but he continued his assault and understanding why that is there over the next 30, 40 years and was able to finally accurately describe how the nature of work differs at each level, each naturally occurring level of the organization. And if he found there were more layers than true levels, you had people tripping all over each other. If you had fewer layers than actual required levels, you had big disconnects. Well, as he began to understand the nature of work at each level, he began to understand the nature of potential. That potential is not only the ability that you see that the person manifests in work, but it's also the latent ability. How good could that person be? But companies confuse potential with work ethic, with passion, with likelihood of moving ahead. And Elliot brought more clarity than anyone to the notion that potential is simply one's innate ability to handle complexity and solve problems. In the debate of nature versus nurture, potential is raw nature. But having now a way to describe the types of work complexity at each level, he has given managers a mental model with which to assess people's potential. He then I think, added great clarity to the notion. How does potential differ from effectiveness? Potential is what someone could do if he or she had the skilled knowledge and the commitment and the desire and maturity that he may not have. Effectiveness is whatever the person is doing. Potential is innate abilities. Effectiveness is applied potential. Potential is what we need to identify in order to develop it for the future. Effectiveness is what we should pay for. And in doing so, he began to follow people over a 35 to 40 year period whose potential was judged. And he discovered a striking thing that over time, potential matures at predictable rates. And he began to see that there are natural developmental curves, just like any pediatrician knows when a child comes in for the visits in the first year of life. They're the same normative biological maturational curves. And what he understood from that was that people may have significant capability beyond their role, lots of mental headroom, but they also may have the ability to move further in their career and begin to look at what people's career runway is. Well, this becomes extremely important as we're trying to align our pool of talent with our models of the organization required for strategy in two and five and ten and 20 years. And it leads towards a very straightforward engineering process for starting with what we have, doing the assessments to validate in a scientific way what it looks like and why it's not fulfilling the current strategy. A set of engineering principles to design the organization that should fill our strategy, seeing whether it is one that is capable of being filled with the talent we have once filling those roles accurately developing the practices, both the leadership and teamworking practices necessary to capably and accountably implement that strategy. And now, coming up with true strategic alignment is no longer a mystery. It's no longer witchcraft or black art. It is a straightforward, rational process. So, in summary, requisite organization allows for the translation of strategy into the right structures and processes, ensuring that every role has clearly defined accountabilities aligned authorities and the right person assigned to it. It allows for the assessment of potential and demonstrated effectiveness, as well as the relevant competencies of each employee. For diagnosing and mitigating both organizational gaps and talent gaps for formulating more accurate and effective coaching and mentoring development plans and decisions. For optimizing every single selection decision and reducing as much bias as possible. And the same for recruitment decisions for then modeling critical talent pipeline scenarios and developing the most inclusive and robust succession plans.